Rene Griemens, Chief Financial Officer, Kreditech

Please give us a bit of background on yourself, and how your organisation plays a leadership role in the financial technology space.

Kreditech’s mission is to improve financial freedom for the underbanked by the use of technology. We combine non-traditional data sources and machine learning for providing better access to credit and more convenience for digital banking services. Our product offerings include consumer loans, a digital wallet and a personal finance manager designed to help customers manage their credit score and plan their spending. Kreditech also offers a “credit as a service” model, allowing partners to integrate our credit products as payment method or funding source.

We have developed a proprietary credit scoring technology that uses big data and machine learning, allowing us to determine credit risk with much greater precision than traditional credit-bureau based systems, especially for thin-file or underbanked customers. Our technology does not only allow us to serve credit to customers that are rejected by banks, but also tailor our loan offer to the individual situation of the customer.

Founded in 2012 and headquartered in Hamburg, Germany, Kreditech has processed more than three million loan applications through its subsidiaries. In 2015 we achieved a revenue of EUR 44m and continue to show strong growth. The Company is led by CEO and Co-Founder Alexander Graubner-Müller and is financially backed by world-class investors including J.C. Flowers, Rakuten, Peter Thiel, and the World Bank’s IFC.

I personally joined Kreditech as CFO in summer 2013 and have since raised equity and debt funding amounting to around EUR 300m. I have a bit more than 20 years of experience in corporate finance, strategy and general management at Citibank, McKinsey and in the tech industry and have managed over 70 financial transactions worldwide, including two IPO processes.

How well are financial companies adapting to the rapid pace of fintech development? What fields are furthest ahead of the game, and what sectors are being left behind?

We believe that it is helpful to separate the challenges for incumbent financial companies between challenges for existing business models and challenges from the creation of new models.

In the existing business models incumbents are being challenged on the customer side (eg. innovative channels, convenience etc.) and on the cost side (eg. new remittance models, no branches etc.). We believe that incumbents are now well aware of the challenges they are exposed to in these fields, but often face substantial difficulties responding to them adequately, for a multitude of reasons, including:

Organisational inability to adapt to the new environment and to the new way of thinking;

Structural and legal restrictions on ability to react (eg. limitations on re-allocation of staff).

We believe that the most advanced players will ultimately make up their backlog on the innovating fintech companies by throwing enough money at the problem and/or acquiring fintech businesses. For many other, late adapting incumbents it will be too late to turn the business before the tipping points will run heavily against them.

The situation is somewhat different for new business models, such as Kreditech’s ‘banking the underbanked’. Here fintech creates entirely new markets, currently unserved by incumbent financial players. They frequently require an entirely new understanding of customers and market challenges as well as innovative technologies and processes to address those. We believe that it will be much more difficult and prohibitively challenging for incumbent financial companies to develop the know-how and skills to enter these markets in the same fashion as the most innovative fintech companies. Thus, our belief is that these markets will remain insulated from traditional financial services companies for a much longer time and may ultimately breed new competitors for mass (consumer) financial services.

What challenges do you see for fintech development and disruption, both from a user's perspective and from a regulatory standpoint?

We see that consumers are ultimately benefiting most from the disruption. After having been neglected by banks for generations, innovative, underbanked-focused fintech companies have brought entire population groups to the centre of attention of the financial services industry. The feedback we regularly receive from our customers is that they love the fact that the product is convenient, fast, secure and transparent and that they can manage their finances independently from banks. We will continue this path by further developing the underbanked into the system.

One important topic in this picture is – you guessed it – regulation. We believe that EU regulation is already improving the industry environment and will continue to facilitate technology innovation, and thus fintech businesses. One great example is PSD2. Thanks to the new Directive on Payment Services, banking becomes more open and helps fintech companies like Kreditech to continue improving its services for the consumer.

What impact do you think Brexit will have on the broader financial technology industry in the UK?

We see that a couple of industry players have decided to move to the continent to further benefit from the EU regulation and from the overall larger markets. Also in that context, funding opportunities for those remaining in UK appear to be decreasing.

What will you be discussing at The Economist's Finance Disrupted Conference on January 25th 2017 in London?

I will focus on Kreditech’s mission of banking the underbanked and how we are making use of technology to address this huge market opportunity. Clearly we don’t consider ourselves as competitors for banking incumbents. Focusing on the segment of the underbanked makes best use of radical innovations in financial technology for underwriting ("Artificial Intelligence in Credit Scoring") and processing ("end-to-end digital"). Banking the underbanked creates substantial value for the end-customer and for the economy and governments.

Also, it is important to differentiate the type of offer when dealing with the underbanked. Banking them can be done ethically responsibly and at risk-appropriate, fair terms & conditions; creating economic and financial improvement for the underbanked 80% will be a process of relative progress and cannot be done within a day.

The economic opportunity of banking the underbanked is enormous, if technology is used well to serve the customer better, while maintaining a lean cost base.